The Latest Inflation Print Was Cooler. Does That Make Crypocurrencies a Buy?

June's Consumer Price Index (CPI) came in at 3.5% year over year, well below expectations for 3.8%. Odds of the Federal Reserve voting for a rate hike in July subsequently collapsed from 42% to 17%. At the same time, Bitcoin (CRYPTO: BTC) ticked up to around $63,500, Ethereum (CRYPTO: ETH) climbed about 4%, and Solana (CRYPTO: SOL) rose too.

The market seems to think that this inflation data is good news. But does this really make cryptocurrencies worth buying right now?

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Bitcoin is a multiyear position

Before treating the CPI data as a green light to load up on crypto, the first thing to do is notice what the headline figure is capturing.

The U.S.-Iran ceasefire that started a sharp decline in gasoline prices in June has ended as of July 8. With a fresh Strait of Hormuz blockade in play, the price of Brent crude is back near $85, and it might climb further. Next month's inflation report will not have the same tailwind of declining energy prices. So investors should probably not jump to buy crypto on the basis of just one cherry-picked data point.

Bitcoin's price mechanics operate in a cycle that spans several years, not months. The four-year halving cycle already tightened the pace of mining adding to the coin's circulating supply in April 2024, and the next halving is coming in early 2028. At the same time, corporate treasuries and Bitcoin exchange-traded funds (ETFs) continue absorbing the asset's supply even during the plunge that started last October.

So for anyone already holding Bitcoin, dollar-cost averaging (DCAing) is still a sensible move, and anyone weighing a new entry can build their position patiently at these levels, provided the holding window is measured in years. This kind of multiyear setup does not need a favorable CPI to work, nor will it stop working when higher CPI readouts inevitably occur in the future.

Ethereum and Solana are a different question

Ethereum and Solana need to be evaluated through a different lens than Bitcoin. Both are worth owning eventually, but three near-term factors could keep their prices depressed or perhaps send them even lower than they are now.

The first is seasonality. August and September have been Bitcoin's only two months with negative average returns since 2010, and altcoins historically experience more intense variations of its declines. Aside from that, Ethereum has historically fallen by a median of 1.8% in August; Solana is traditionally little changed for the month.

The second factor is the macroeconomic backdrop. The longer the Strait of Hormuz remains blockaded by the U.S. and/or Iran, the more energy prices will rise. If the Red Sea is also shuttered by an escalation of the war, energy prices will rise even more. And rising energy prices lead to inflation, which would encourage the Federal Reserve to hike rates, sapping liquidity from risk assets like crypto, especially those further out the risk curve than Bitcoin.

The third issue is the planned upgrades.

Ethereum's Glamsterdam upgrade, which could launch as soon as late August, is the largest architectural change to the network since its switch to proof-of-stake from proof-of-work in 2022. Solana's Alpenglow update, which is also targeted for the third quarter, replaces the network's core consensus system.

The changes to both networks could well make their native tokens more valuable. Or, if the new features aren't delivered on time or don't meet investor expectations, it could increase downside risk. And if that happens when the crypto market is already reeling from the impact of lower liquidity or the expectation of it, it could be detrimental for the prices of Solana and Ethereum.

So for the moment, it might be best to hold off from loading up on them. They're facing a lot of uncertainty and risks that have nothing to do with their value, and there might not be any reward for holding through the volatility anyways.

Alex Carchidi has positions in Bitcoin, Ethereum, and Solana. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Solana. The Motley Fool has a disclosure policy.